Curve Finance is a decentralized finance (DeFi) protocol focusing on efficient stablecoin trading and low-risk yields for liquidity providers. Built on the Ethereum blockchain, Curve launched in January 2020 and has quickly grown to become one of the most extensive DeFi protocols with over $10 billion in total value locked.
How Does Curve Finance Work?
Curve Finance utilizes an automated market maker (AMM) model to facilitate trading between stablecoins such as USDC, DAI, and USDT. The protocol incentivizes liquidity providers to deposit an equal value of two or more supported stablecoins into liquidity pools.
In return, liquidity providers receive trading fees from swap transactions and CRV tokens as rewards. The CRV token entitles holders to a portion of the trading fees and can be staked to earn more CRV.
Critical Benefits of Curve Finance
- Efficient stablecoin trading: Curve offers extremely low slippage for huge stablecoin trades, making it popular among DeFi protocols and whale traders.
- High-yield farming: Liquidity providers can earn lucrative APYs from trading fees and CRV rewards. Pools offer 5-20% base APY plus extra CRV rewards.
- Low risk: Curve pools consist of similarly priced stablecoin assets, reducing impermanent loss risk.
- CRV token rewards: CRV holders receive trading fee dividends and voting rights and can stake CRV to multiply prizes.
Popular Curve Pools and How They Work
Curve deploys a variety of AMM pools, each designed for optimal stablecoin swaps between two or more pegged assets. Here are some of the most popular Curve pools:
3pool – DAI/USDC/USDT
The 3pool contains an equal value of DAI, USDC, and USDT – the three largest stablecoins. It is the foundational Curve pool with high liquidity for swapping between this “stablecoin trinity.”
renBTC Pool – renBTC/WBTC
The renBTC pool facilitates swaps between renBTC and WBTC, two ERC-20 tokenized versions of Bitcoin. This pool taps into the growing demand for Bitcoin exposure on Ethereum.
sBTC Pool – sBTC/renBTC
Like the renBTC pool, the sBTC pool enables swaps between sBTC and renBTC for additional Bitcoin liquidity on Curve.
Iron Bank Pool – USDC/DAI/USD
The Iron Bank pool contains USD-pegged stablecoins USDC, DAI, and USD. It offers an alternate venue for stable swaps.
BUSD/USDT/USDC Pool
This pool focuses on swaps between the Binance-issued BUSD stablecoin and other USD stablecoins USDT and USDC.
Curve’s CRV Token Explained
The CRV token is the governance and utility token of the Curve ecosystem. Here are some critical details on CRV:
- CRV holders can stake their tickets in the Curve DAO to receive trading fee dividends from Curve pools and vote on protocol changes.
- CRV stakes also earn extra CRV rewards based on how long they lock their CRV and the amount staked.
- New CRV is distributed to liquidity providers as an added incentive for supplying funds to pools.
- The CRV token has a max supply of 3.03 billion. Over 60% of CRV is currently staked in the DAO.
- CRV is an inflationary token – the supply increases over time through liquidity mining rewards.
- Trading fees from Curve pools are used to buy back CRV and distribute to speakers, providing organic demand.
Convex Finance Enhances Yields for CRV Stakers
Convex Finance boosts rewards for CRV stakes by allowing staked CRV to be collateral for other DeFi strategies. Users deposit staked CRV tokens into Convex pools to earn trading fees plus CVX rewards.
CVX holders can then use the governance token to direct Convex treasury funds into yield-generating strategies like staking and liquidity, providing further multiplying rewards.
This synergistic relationship dramatically increases APY for Curve liquidity providers, making Curve even more attractive for stablecoin LPs.
Conclusion
Curve Finance has succeeded in building deep liquidity and attracting huge stablecoin trades between pegged assets like DAI and USDC. The protocol reduces slippage on large swaps through its AMM model and incentivizes liquidity with trading fees plus CRV rewards.
Convex Finance further optimizes yields on CRV by multiplying rewards for stakes. Together, Curve and Convex offer some of the most profitable yet low-risk yield opportunities in DeFi. With continued stablecoin growth, Curve is poised to remain a leading player in decentralized exchanges.
FAQs
What is CRV used for?
CRV is the governance token of Curve Finance. It allows holders to earn trading fee dividends, vote on proposals, and boost rewards when staking in the Curve DAO.
How do you get CRV tokens?
New CRV is distributed as a reward to liquidity providers supplying funds to Curve pools. You can also buy CRV tokens on exchanges like Coinbase.
What is the best Curve pool?
The 3pool (DAI/USDC/USDT) offers the best overall liquidity and yields. Other top pools include renBTC and the Iron Bank pool.
How does Curve make money?
Curve earns revenue from trading fees on swaps between assets within its liquidity pools. Most of these fees are redistributed to CRV stakes.
Is Curve Finance safe?
The Curve is considered safer than other DeFi protocols, given its focus on stablecoin pools. This reduces impermanent loss risks for liquidity providers.
